UPS third quarter revenue rises 3.4 percent to $13.5 billion

Hitting its stride in the second half of year, UPS announced today that third quarter revenue jumped up 3.4 percent to $13.5 billion, and operating profit rose 133.5 percent to $1.8 billion. Quarterly earnings per share—at $1.16—increased 9.4 percent and edged Wall Street analysts’ expectations of $1.15 per share.

UPS cited strong e-commerce shipments and European export growth as drivers for the positive quarterly output.

“Our third quarter business improved from the first half of the yea even though our business faced similar market dynamics,” said Scott Davis, UPS chairman and CEO, on an earnings call this morning. “The U.S. domestic business continues to benefit from e-commerce, while international experienced strong demand for UPS deferred products. Performance in our Supply Chain and Freight segment improved primarily though ocean forwarding, brokerage, and North American airfreight results.”

Addressing the global economic environment, UPS said growth forecasts in the EU have been revised upward as it begins to recover from a deep recession, however, he noted Asian economic efforts are mixed as expansion in Japan has been somewhat offset by slower growth in China. And in the U.S. Davis said the federal government shutdown has created some anxiety while the impact on UPS service was minimal. But he cautioned that some experts maintain the shutdown will be a drag on fourth quarter GDP.

Davis also commented on the labor negotiations between UPS and the Teamsters, saying that over the summer its employees approved the National Master agreement, which covers wages, pension, and healthcare, while work continues on the open supplements, with progress being made in the last month that he said will hopefully lead to approval so its employees will receive improved wages and benefits and a new contract.
In the first quarter, average daily package volume of 15.9 million packages was up 3.0 percent. Total U.S. domestic packages averaged 13.5 million for a 2.3 percent increase and total international packages rose 2.5 percent to 3.0 million packages per day. U.S. domestic package next-day air daily volume slipped 3.3 percent to 1.22 million packages per day while deferred—at 952,000 packages—and ground at 11.3 million packages—were up 2.3 percent and up 3.0 percent, respectively.

UPS U.S. domestic package revenue at $8.2 billion was up 5.0 percent. Total consolidated revenue per piece at $10.87 was down 0.3 percent, with U.S. domestic packages and international package averages at $9.54 (up 1.0 percent) and $18.17 (down 5.2 percent), respectively.

International package revenue at $3.0 billion was up 2.5 percent. Average daily package international package volume—at 2.4 million—was up 6.5 percent. UPS said that daily export volume on the international side was up 6.7 percent, and European exports were up almost 10 percent and exports out of Asia were flat

Supply chain and Freight revenue at $2.2 billion was down 0.7 percent, and operating profit at $201 million was up 6.9 percent. UPS Freight, the less-than-truckload segment of UPS, saw revenues up 5.5 percent at $751 million, due to improved tonnage, rate hikes, and revenue-per-hundredweight, but these gains were offset by decreases on the Forwarding side, which is seeing weak demand in Asia that continues to put pressure on rates.

UPS CFO Kurt Kuehn said on the earnings call that while supply chains are becoming more efficient, they are also becoming more complex.

“[T]hird quarter results reflect the company’s ability to adapt to the shifting demands of our customers around the world,” he said. “These are solid results considering market trends in our global economic environment.”

Kuehn said UPS’ international segment in the third quarter continued to be impacted by shifting customer preference for deferred products, explaining that shippers continue to use non-premium UPS products like Worldwide Expedited and Trans Border Standard, which both increased 11 percent in the quarter, with premium products up 1 percent.

Growth in shorter trade lanes and lower fuel surcharges also contributed to international yield declines, he said.

For the fourth quarter, Kuehn expects daily U.S. volumes to be up 3-to-4 percent, with revenue up about the same as volume, while base rate improvements may be tempered by lower fuel surcharges and changes in mix and package characteristics.

“Looking forward, the wildcard will be the opportunities and challenges of a compressed Peak Season [with six fewer operating days],” he explained.

Jerry Hempstead, president of Hempstead Consulting, in Orlando, Fla., said that there were “surprises” in today’s earnings announcement in that everything seems to be clicking in a quarter that is usually somewhat slow during the summer.

“One of the important indices of economic health is the package ground piece count and that was up an impressive 3 percent in particular with Fedex being up 15 percent, albeit on a much smaller base than UPS and one would think that some of the FedEx growth comes at the expense of UPS,” he explained. “Not surprising is the decline in express packages as more and more, automation is allowing shippers to obtain next day delivery on short haul transactions using less expensive service choices which guarantee equal to, or at times better service than some ‘air services.’ It’s also no surprise that international freight is off, but this has been well known throughout all the players but the international package growth was telling.We come now into the busiest period of the shipping year. Driven by the now universal acceptance and trust in e-commerce to deliver I suspect Q4 will be explosive for UPS in particular with their hybrid postal offering Sure Post.”

What’s more, the parcel consultant pointed out that the resolution of the labor contract with the Teamsters has now mitigated the dampening effect on UPS growth due what he called the FUD factor ( fear uncertainty and doubt) which prompted some shippers to hedge their bets in prior quarters in the event of a possible labor event.

“That hurdle had now been cleared and there should be labor peace for considerable time looking forward so the competitors of UPS no longer hold that card over their head,” he said. “Also evident is that the rate increase from earlier in the year ‘stuck; and clearly margin improvement coming from discounting discipline.”